On the runway to success - MCH Group

INTERNATIONAL MARKETS PAGE 48
up on average by 23%. Many of
the major players have seen high
double-digit growth this year.
While this data presents a convincing
picture of recovery,
another set of economic realities
raises the question of whether or
not this growth is sustainable,
considering the following:
• While the forecast for 2011
holidays sales was 3.8% above
2010, this falls short of the 5.2%
increase the U.S. retail industry
saw last year (2010 over 2009).
• Spending may be up, but
consumer debt in the U.S. has
reached an all-time high. A survey
by America’s Research Group
found that 27% of Black Friday
shoppers used credit cards this
year, compared to 16% in 2010;
and 43% admitted to spending
more than they planned, up from
39% last year. Personal savings
rates have fallen to levels not
seen since late 2007
• Unemployment remains high,
at 8.5%.
• Consumer debt, excluding
mortgages and home equity credit,
increased 1.3% in the latest
quarter, and delinquencies sit at
10%, up from 9.8% in the previous
quarter.
• The euro crisis is a growing
issue. According to Bain, Europe
accounts for the largest share of
the worldwide luxury goods market
(Germany, France and Italy
account, collectively, for 39%
of the market, followed by the
U.S. at 48%). A further collapse
of the euro could therefore cause
recession and affect the luxury
industry. Bain is in the process of
studying this situation.
• The luxury market in China
(currently unsaturated, at just 9%
of the luxury market) is growing
at a rate of 35%, while U.S.
growth stands at 15% and Europe
(Germany, France and Italy) have
a combined average growth rate
of 11%.
Cautious optimism
Forecasters remain cautiously
optimistic about the economy
in the coming two years. The
National Retail Federation forecasts
industry sales growth in
the U.S. of only 3.4% in 2012,
slightly lower than the pace of
2011, in which sales grew 4.7%.
The Bain Luxury report weighs in
with a positive outlook, despite
socio-economic turmoil. It forecasts
growth of 10% for 2011,
and 6-7% from 2011 to 2014. The
luxury business, which it forecast
to total 191 billion euros for
2011, will grow to between 225
SATURDAY. MARCH 10. 2012
Bn./ U.S. dollar
According to a study by Goldman Sachs, in the long run the demand for luxury goods in China will
grow as strongly as in no other country worldwide.
and 230 billion euros in 2014,
it predicts. “Luxury, in all its
segments, is a huge and growing
market,” concludes the report.
Generalists are also cautious. “I
expect economic growth better
than we’ve had the past few
quarters, back up to the pace
that we enjoyed in early 2010,”
says Bill Conerly of Businomics,
an online economic forecast.
“But serious risks from Europe
mean that business leaders
should do some economic contingency
planning.” He predicts
that, “with this moderate pace of
economic growth, the Fed will
certainly keep short-term interest
rates low. However, continued
growth in the world economy
will push up demand for credit,
pushing long-term rates up by
about two percentage points in
two years, so [rates] will end
2013 around 4%.” Conerly also
predicts that the U.S. dollar will
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Comparison: growth of luxury good markets
350
300
250
200
150
100
50
USA
Europe
Japan
China
0
2009 2011 2013 2015 2017 2019 2021 2023 2025
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Brazil
Russia
India
Source: Goldman Sachs, “The rise of the BRICS and N-11 consumer”, December 2010, forecast
decline by 6% per year over the
next two years, that unemployment
will continue to decline
slowly − to about 7.5% in 2013
− and concludes there is a “30%
probability of a recession centered
on exports due to the European
crisis.”
According to the World Bank,
global growth is projected to
remain strong from 2011 through
2013. “After expanding 3.8% in
2010, global GDP is projected
to slow to 3.2% in 2011 before
firming to a 3.6% pace in each of
2012 and 2013.”
As for whether or not current
record watch sales are sustainable,
according to Pasche, the
answer is yes: “We are confident
in the future, as there is still
potential for growth all over
the world,” he says. “Let’s consider
countries like India, Vietnam,
Indonesia, East Europe
and Latin America. It is up to
our industry to remain attractive
and competitive, but potential
exists.” As for the U.S. market,
he comments, “it is recovering
at least for our products, but
I would consider this increase
partly as catching up what has
been lost during the crisis. We
have not yet come back to the
results of 2007/2008.” (cb) ■